Special Report: Airport traffic 2009

With nearly a quarter of the world's busiest 100 airports losing traffic, 2009 was every bit as tough as feared. As traffic begins to pick-up, what can airports do to make sure they are at the forefront of a return to brighter fortunes?

If it is a bad year for the economy, it's usually equally grim for the airlines. And if it is bad for both of those, the picture is going to be bleak for airports, whose fate hinges on both. A glance through the Airline Business annual airport traffic rankings for 2009, based on preliminary 2009 data from Airports Council International, shows just how bad things got for airport passenger numbers last year.

Figures across more than 900 airports show passengers down 2.7% in 2009, with nearly three-quarters of the busiest 100 airports losing traffic last year. The overall drop in passengers is on a par with the traffic lost by airports in 2001 after the 9/11 terror attacks. The situation last year though differs from 2001, when the scale of the traffic decline was heavily driven by North America which comprised 42% of all traffic at the time. "In 2001 declines in other regions were rather marginal and did not exceed 1%," explains ACI World director economics, Andreas Schimm. "But in 2009 declines in North America were a little less (-5.4% compared with -6.5%) and its share of global traffic went down to 32%." Notably in 2009 there was a more pronounced decline in traffic at European airports of 5.5%.

But the picture was far from uniform in 2009, reflecting the different impact of the crisis, pace of recovery and development stage of markets. A look at the top 150 airports shows that while passenger numbers were down in Europe, North America and Africa, it was virtually unchanged in Latin America, and grew in the early-recovering Asia-Pacific and fast-expanding Middle East markets.

Here a strong performance in some of the key emerging markets drove the growth, notably in China, India and Brazil. While 2009 saw passenger growth in airports across a number of different countries in Asia, Chinese airports - driven by a strong domestic traffic performance - clearly led the way. Eight out of the ten fastest growing airports in the 2009 Top 100 were in China and all enjoyed double-digit growth, except for Shanghai - which had a far from shabby 9.6% growth.

Much of this was driven by domestic growth. For example, ACI figures for Asian airport domestic traffic growth in 2009 was 3.2%, compared with a decline in international traffic of 1.7% over the same period. Similarly, while some Asian international gateways saw passenger levels grow last year, even a strong end to the year was unable to prevent most of the larger Asian hubs from losing traffic in 2009 - which Schimm says largely reflected dwindling international growth. This was evident at Japanese airports, where traffic was well down at many as a combination of the economic crisis and travel fears relating to the H1N1 flu virus hit air travel demand.

The Japanese experience also highlights the relationship between the economy and an airport's fortunes. As GDP among advanced economies shrunk more than 3% in 2009, airports in these regions generally saw traffic fall. By contrast, emerging economies largely continued growth in 2009. "Passenger volumes are a function of economic growth, as well as a function of airline seat capacity and frequency," explains Schimm. "In response to the economic downturn and the dwindling demand for air travel, airlines reduced seat capacity and consolidated route networks, resulting in a lower supply and number of routes in a bid to keep air fares stable."

He says that generally during 2009 it became clear that the smaller the airport, the larger the decline would be - or once traffic began returning in the last quarter, the smaller the growth would be. "As demand dropped in the wake of the financial crisis and the recession took hold, many routes between secondary or third tier airports became unviable and got slashed. The network carriers consolidated operations at their hubs, reinforcing their hub and spoke operations," he says.

With such a clear link to the fortunes of the economy and the airlines, airports are limited in the extent to which they can control their own traffic destinies. One obvious area within their grasp is charges and route development support. Different pricing structures, placing more emphasis on passenger numbers, and reduced or lower than planned charges were brought in by many airports in response to the crisis in a bid to offer airlines breathing space - though not necessarily as deep or widespread as airlines would have wanted.

LOW-COST CARRIERS SPREAD

This concentration of traffic around the large hubs has created more opportunities for, and crucially an appetite among a wider range of airports, to turn to low-cost carriers to fill the gap. "I think there's barely an airport in the world that would say 'we don't want low-cost carriers'," suggests David Feldman, managing partner with Exambela Consulting, pointing to just a few very congested exceptions. As a result, for many of the leading airports growing low-cost carrier traffic was a resilient feature of their traffic story in the tough 2009. Singapore's Changi airport, for example, which saw passenger numbers slip 1% last year to 37.2 million, points to strong traffic between Singapore and Indonesia, Malaysia, the Philippines and the United Arab Emirates as bolstering its performance. But it also saw low-cost carrier passenger traffic and aircraft movements increase 50% to 19.1% and 23.6% respectively in 2009, and this has continued to grow this year.

Similarly, low-cost carriers also helped San Francisco buck the trend of most North American airports in fractionally increasing passenger numbers last year. The airport, which together with Baltimore were the only two North American airports among the top 100 to see traffic growth in 2009, was aided by low-cost expansion from the likes of Southwest Airlines and Virgin America as strong domestic traffic offset falling international levels. "It [the low-cost sector] makes up around 20% of traffic, but even the traditional carriers are adding domestic capacity to compete on these routes," says Michael McCarron, director of community affairs at San Francisco Airport.

In Europe low-cost carriers point to the advances they have been able to make in a number of mainstream markets, exploiting the capacity cuts made by network carriers. "Airports are becoming more aggressive in their marketing to airlines, not just to low-cost carriers, but primarily to low-cost carriers," suggests Feldman, not just in Europe but also North America.

SUPPORT UNDER SCRUTINY

Incentive marketing support deals remain a way to attract new routes and customers, particularly for secondary airports. These, though, continue to stay under the microscope of network carriers. Air France, for example, recently disclosed it has lodged a complaint with the European Commission over support Ryanair receives from French regional airports, while Lufthansa lobbied against Lubeck Airport near Hamburg in the recent debate on renewing a deal with Ryanair. The Irish budget carrier, though, remains dismissive of such complaints, citing a landmark 2008 European court ruling relating to a support deal in place with Brussels Charleroi Airport, which leaves public airports free to enter long-term, low-cost agreements with airlines in order to grow traffic. During the crisis there were even incentive schemes launched on a national basis, such as that of Spain for example, covering packages wiping out many fees on new air routes.

A numbers of airports have also embraced dedicated low-cost terminals or areas, often operating alongside more elaborate facilities for network carriers. Feldman believes the different requirements for short-haul, low-cost versus full network intercontinental flights will result in a more tailored pricing structure for particular services. "There will be a trend to more à la carte pricing, which the airlines want as well," he says, whether it be charging for an airbridge separately or for the number of check-in counters an airline wants.

But overall Feldman says that even with an innovative approach, airports can only go so far to fuel air travel demand "It is hard for airports to do because it [demand] is a price-driven thing and air fares are set by airlines. Airports can lower their charges a bit, but that's only a small part of the [ticket] cost and they can only do it one way - people generally fly in both directions. So there isn't that much they can do."

He also points out airports know relatively little about their customer, making it difficult to build a relationship with travellers in the same way an airline does. "It's very hard to reach out to a customer in a way an airline can. Often an airport doesn't know if they are local, inbound or outbound and really don't have any contract with the passenger. That is why some of them are working on frequent flyer schemes," he says. "Pre-booking for parking is another initiative. It gives a bit of additional revenue and is a way for the airport to know who you are."

IMPROVING TRAFFIC

While the economy has improved slightly faster than expected, at least initially, there is a lag between economic recovery and airlines adding capacity. This reflects airline efforts to improve load factor and yields. "As movement figures showed in 2009, airlines were not able to withdraw capacity at the same speed as traffic demand dropped, yet, when demand started to grow mid-year, carriers reacted very cautiously by re-adding capacity slowly, resulting in higher load factors," explains Schimm.

Figures for the first quarter of 2010 show the strong pick-up in the last quarter of 2009 has continued. Passenger traffic is around 6% higher over the first three months of the year than the same period in 2009, according to figures from ACI - though notably it is still 3% below 2008 levels. It also remains a mixed picture across the regions, with double-digit passenger growth seen across Asian and Middle East airports contrasting with growth of 1% and 2% in North America and Europe.

"The growth in the last quarter of 2009 was largely driven by domestic traffic in China and Brazil and other emerging markets such as the Philippines, Indonesia and Malaysia. This growth is unlikely to spread to the mature markets in North America and Europe as it is domestic or regional," says Schimm, noting improved figures in these two regions towards the end of last year showed growth largely because of the low figures in the comparable period in 2008. ACI data shows passenger numbers for Europe and North America remain "significantly" behind volumes reached in 2007, particularly in the US domestic and intra-European markets.

But there is some optimism in the USA. Kim Day, airport aviation manager at Denver International Airport, which saw passenger numbers grow nearly 4% over the first three months of the year, says: "We saw a lot of spring breakers this year due to some phenomenal air fares and other travel deals around the world. We also saw a good increase in the number of business travellers getting back on the road, so to speak. We are hopeful that this is a sign that the economy is moving in the right direction."

Feldman says that in Europe, which finds itself faced once again in economic uncertainty amid the difficulties in Greece, traffic in the key short-break market has yet to bounce back. "One of the issues in Europe, especially in the UK, is that while everybody still takes their summer holiday and the business traffic is slowly coming back up, the short-break or romantic weekends have dried up," he says. "That is very dependent on GDP growth, or perceived GDP growth."

Finnish airports operator Finavia, which in March detailed a new discount incentive scheme aimed at boosting traffic, outlined the tie with the local economy in its outlook released earlier this year. "The trend in passenger numbers is largely dependent on the development in the entire global economy and especially the general economic situation in Finland," explained Finavia chief executive Samuli Haapasalo.

Schimm says 2009 confirmed the pattern that traffic drops faster than GDP in a downturn, though noting this also likely to be a function of airline network restructuring and consolidation. "In 2010 traffic volumes can be expected to exceed GDP growth as passenger demand rebounds and capacity is slowly added back to the market," he adds. "While that applies to the industry overall, individual airports, particularly small- and medium-sized players, are certainly more dependent on their carriers and their specific strategies. The economic development therefore only has an indirect and delayed impact. The hub airports are likely to feel the recovery first and therefore their performance is more immediately linked to economic output."

With consolidation and capacity cuts a key part of an airline's weaponry for dealing with the crisis, airports face the challenge of securing strong, growing carriers, but maintaining a healthy mix so as not to become too dependent on a single carrier and vulnerable if they run into difficulties. An airport such as Hannover in Germany, for example, at which budget carrier Germanwings has just launched a base operation, hopes to have struck the right balance. Hannover expects the addition of Germanwings should increase its five million annual traffic numbers by around 10%. "The future of our customers in Hannover is quite well balanced. We have Air Berlin, we have Germanwings, we have the legacy carriers, we have some carriers in our special niche in east European markets. So we have a situation where no single airline can put too much pressure on the airport," says Hannover Airport chief executive Raoul Hille.

But ultimately, however, well prepared an airport's strategy is for keeping its traffic on track, there remain some things which it cannot have any influence over. The volcanic ash cloud that brought European air space to a halt in April, and has continued to cause sporadic stoppages, is a prime example. While it remains too early to estimate its full impact, it has provided an unwanted setback to European airports, which had taken comfort from a brighter start to the year "The recovery in air traffic has gained ground in the first three months of the year," says ACI Europe director general Olivier Jankovec, as passenger numbers across 113 airport rose 5% and cargo traffic is nearly back to 2008 levels. "However, the paralysis caused by the massive closure of airspace in response to volcanic ash dispersion has seen Europe's airports losing up to 25% of their traffic in April. This is an extremely severe shock to our recovery, which is still evolving."